Homeownership – No degree: no means… Yes degree: no interest

Fewer young people today own a home than they have in the past 20 years. The rate of homeownership for households headed by someone under 35 years old fell to 34% in the first quarter of this year, the lowest level since at least 1994, according to U.S. Census data.

Who can buy a home and who can’t? You can break people up into three groups: those without a college degree, those with a college degree and no student loan debt, and those with a college degree and carry student loan debt.

Is Homeownership an Attainable Goal?

As you might expect, young people — aged 18 to 34 — without a college degree earn less than those who have a college degree. That degree certainly impacts people’s earning power which has a direct correlation to their ability to buy a home. According to data released by Apartment List, from a survey of more than 31,000 respondents, those people who have a college degree and carry no student loan debt are able to save up for a down payment for a home in just five years.

Those people who have a college degree, but also have student loan debt, will have to wait longer before they have enough money to buy a home. According the research, this group will need ten years before they are able to save up enough money for a down payment on a home. Those without a college degree will need more than 15 years before they have enough cash.

Usually, people try to expedite the home buying process by seeking assistance from friends and family for the down payment. Interestingly, the report also find a correlation in the amount of cash each of these three groups is able to attain. Those with a college degree and no student loan debt were suggesting that they would be able to borrow roughly $8,000 from friends and family for a down payment. Those who also had a degree, but carried a student loan indicated that they would only be able to gather about half that, or $4,000 for a down payment. Those without a degree indicated that they could only expect to get about $2,000.

There have been numerous studies that people tend to be friends with those of similar socioeconomic backgrounds to their own. Motivational speaker, Jim Rhon, is famous for saying that your salary is the average of the five people you spend the most time with. Given that assumption, and presuming that there isn’t too wide a spread in salary among those five people, you can see why those lower wage earners — the folks without a college degree — might only expect to receive $2,000 from friend and family to help them with their down payment, but the disparity between college graduates with and without student loan debt seems a bit peculiar. Why would those who don’t have student loan debt expect to receive $8,000 from their friends and family, twice the $4,000 that those that carry student loan debt expect? The answer would be purely speculative, perhaps whose who have debt also associate with those who have debt and are therefore have less disposable cash?

Since we tend to spend time with people of similar means, those who are interested in homeownership and likely to spend their time with friends and family who own their own home or are interested in owning a home. The reciprocal is likely true as well. Those who think that homeownership is either unimportant or unattainable likely spend much of their time with people with a similar mindset.

More money, less saved
Those with college degrees might have higher salaries, but their savings rate isn’t commensurately higher. The average college graduate earns $22,600 more than those without a college degree. Unfortunately, those folks don;t seem to be socking that money away for the future, they are spending it. College grads seem to only save about 10% of that extra $22,600 more that they earn. Where does the rest go? It seems they are living a higher lifestyle. Millennials are more experiential-based than other generations. They want to travel and socialize. As such, they tend to spend their money dining out, traveling, and on higher rents. Presumably they are electing to live in more desirable areas with higher rents. So even though these college grads have a greater opportunity to save for homeownership, and could afford to buy one in just five years, it’s appears that it’s just not important to them as few — roughly one in three — owns a home today.